Finance ministers explore ESM bank cap

Eurozone finance ministers meeting in Brussels today (11 February) discussed whether to limit the amount of money that the area’s rescue fund can use to directly recapitalise banks.

Jeroen Dijsselbloem, the Dutch finance minister who chaired the Eurogroup meeting for the first time, said that “the possibility of a cap is definitely on the agenda”.

The 17 ministers will spend every monthly meeting between now and June discussing the terms of the European Stability Mechanism’s (ESM) new role in recapitalising banks – a move enabled when European Union leaders approved the establishment of the single bank supervisory mechanism in December.

The ESM was created initially to lend money only to governments – in full bail-outs or in banking-sector bail-outs such as the one obtained by Spain – but the potential to recapitalise banks itself aims to break the link between government and financial sector debt.

Dijsselbloem said that exploration of the issue would continue “in the coming months” along with other matters connected with direct recapitalisation and the ESM, including the possibility of using private capital.

“Our discussions are continuing on the assumption that nothing is agreed until everything is agreed,” Dijsselbloem said.

Ministers also discussed Cyprus’s imminent bail-out, although they have decided to delay any decision until after the country’s general election this month.

Dijsselbloem said that ministers agreed to call for an independent report on Cyprus’s efforts to counter money-laundering – the outcome of which could determine the conditions of any bail-out.

He refused to be drawn on other conditions of the bail-out, including whether the eurozone would enforce “bail-ins” on Cypriot banks to force bondholders to contribute to the rescue and restructuring.

Finance ministers also briefly discussed the euro’s gains in the currency exchange markets. France is pushing for the eurozone to set an exchange rate target, fearing that the euro’s appreciation is making exports less competitive.

However, Dijsselbloem said that it was thought “more appropriate” for the issue to be discussed by finance ministers of the G20 group of leading and emerging economies at their meeting in Moscow on Friday and Saturday (15-16 February).